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False Claims Act implications

By Charles I. Artz, Esq.

A recent decision interpreting the federal False Claims Act (FCA) may have a significant impact on health care providers’ obligations to be conversant with and abide by not only reimbursement laws and regulations, but also carrier interpretations and medical policies.

In In Re: Cardiac Devices Qui Tam Litigation, the U.S. District Court in Connecticut refused to dismiss a whistleblower’s case against health care providers who submitted claims for services that were not covered by Medicare, held that the health care providers had a duty to familiarize themselves with all requirements for reimbursement, and allowed the False Claims Act case to proceed exposing the health care providers to millions of dollars in refunds and civil fines.

Although the opinion was close to 100 pages in length, the key facts can be summarized as follows. Then-HCFA published a manual over 1,000 pages in length containing literally hundreds of reimbursement rules and requirements. These billing guidelines were not statutes passed by Congress after the people had an opportunity to debate them. These were not regulations published with notice and comment by the general public or the health care community to make improvements or to object to certain clauses. These were purely interpretive guidelines published by the federal government. One of those several hundred billing guidelines contained a provision prohibiting reimbursement for any non-FDA approved device or service. The 40 hospital defendants in this massive federal court litigation submitted claims to Medicare and received payment for services provided to patients who participated in clinical trials involving several different investigational cardiac devices that had not been approved for marketing by the FDA. One clause in the hospital payment manual stated that medical devices not approved for marketing by FDA are considered investigational by Medicare and are not reasonable and necessary for the diagnosis and treatment of illness or injury under the Medicare statutory definition of medical necessity. Apparently, the hospitals billed these services by mistake, believing that since the clinical trial was approved, the provider was allowed to bill Medicare for the device and related services.

A whistleblower realized many hospitals were billing Medicare for non-FDA approved cardiac devices and filed a civil false claims case in federal court. The federal government intervened and is now prosecuting the False Claims Act case against hospitals. The hospitals asked the federal court to dismiss the case for several reasons. One of the key defenses is that a simple violation of a statute or regulation does not, by itself, trigger False Claims Act liability. The federal court rejected that analysis and made the following key points that should guide your compliance efforts:

· Participants in federal health care programs have a duty to familiarize themselves with all legal requirements for payment, not just enacted laws and published regulations.

· If a provider fails to inform himself of all legal requirements for payment including CMS and carrier guidelines, the provider may act in reckless disregard or in deliberate ignorance of those requirements, establishing liability under the False Claims Act.

· Because the reimbursement guidelines were technically available or provided to each of the providers, they had a legal duty to familiarize themselves with its provisions.

· The Medicare Act contains a definition of medical necessity which is an express condition of payment, and explicitly links each Medicare payment to the requirement that the particular item or service be reasonable and necessary.

· Because the Medicare statutory definition of medical necessity expressly prohibits payment if a provider fails to comply with its terms, a provider’s submission of the claim forms implicitly certifies compliance with this provision.

· Submission of every claim form to Medicare means that all health care providers implicitly certify compliance with the Medicare Act’s medical necessity definition, and that they are only seeking payment for services that are reasonable and necessary.

· When a claim form includes requests for payment for services that are not reasonable and necessary, and the provider knew or should have known the claims were not medically necessary, the claims are legally false under the “implied certification” theory.

· The Medicare regulations imposed on the providers the obligation to provide the carrier with all information necessary to determine whether payment was due.

· The providers were obligated to seek payment only for those services that were covered; to the extent they sought payment for services that were not covered, the claims were legally false.

· Even though a properly published regulation changed the billing rule at issue to allow some non-FDA approved medical devices to be billed to and paid by Medicare, the Medicare manual interpretive rule in effect at the time was legally binding.

· The government contends all services related to the non-covered services were also false claims, but the Court did not directly rule on this point.

· Sufficient facts existed to allow the 10-year statute of limitations to apply.

If a health care provider is found to have violated the federal False Claims Act, the provider is obligated to repay all of the mistakenly obtained reimbursement, plus triple penalties, plus a civil fine of $5,500 or $11,000 for each HCFA 1500 claim form filed. In one case where only the $5,500 per claim form sanction was imposed, $58,000 in improper claims resulted in sanctions of almost $730,000. Exclusion from Medicare and Medicaid programs may also be imposed. This results in termination of hospital staff privileges, cancellation of managed care contracts and possible licensure disciplinary action. In addition, the government often imposes a Corporate Integrity Agreement, which is an onerous compliance program. Therefore, the sanctions for violating the False Claims Act are devastating.

The In Re: Cardiac Devices Qui Tam Litigation decision has serious implications for your compliance efforts. In light of the duty to familiarize oneself with all reimbursement statutes, regulations and guidelines (even those that do not have the force and effect of law but which are nevertheless imposed as though they were the law), a well-functioning Risk Area assessment in each compliance plan should include making a list of each service billed and ensure that all applicable laws, regulations, rules and interpretive guidelines are obtained, understood and followed. For federal program purposes, risk area assessment should include an analysis of each of the following:

· National Coverage Determinations.

· Local Coverage Determinations.

· Local Medical Review Policies.

· Carrier Bulletins.

· Contract restrictions.

· Medical Policies.

· CPT Coding Manual provisions.

· CPT Assistant interpretations of rules relating to the Coding Manual.

· Medicare laws and regulations.

· Medicare Program Transmittals and Memoranda.

The In Re: Cardiac Devices Qui Tam Litigation decision appears to create a duty on providers to know each rule applicable to any claim submitted, whether the rule has been given directly to the provider or not, and that missing it or failing to know about it (whether the provider saw the rule or not may be irrelevant) constitutes reckless disregard or deliberate ignorance sufficient to establish liability under the False Claims Act.

An important compliance planning tool would be to organize the list of services provided and access CMS’ website at, then click on each of the CMS Manual System, Physician Program Transmittals, Program Memoranda, and Medicare National Coverage Determinations Manual references on that web page. Each of these should be reviewed to determine whether claims are submitted consistent with the applicable rules. All Bulletins published by Medicare and Medicaid carriers should be carefully scrutinized and reviewed, and the carrier’s own website should be accessed for similar information.

I have personal experience with the U.S. Department of Justice using the In Re: Cardiac Devices Qui Tam Litigation decision to threaten False Claims Act sanctions and penalties against physicians who were unaware of a National Coverage Determination for a particular service, secured advice and approval from the Medicare carrier to bill for the service, yet now are faced with the allegation that they recklessly disregarded the billing rules about which they were unaware but, according to DOJ, should have been aware.

Moreover, because the Government Accounting Office has found pursuant to its study that the Medicare carrier staff are either partially or completely wrong over 90 percent of the time in their answers to billing and coding questions presented by providers, reliance on carrier staff may no longer be reasonable in light of the legal theory articulated above. Therefore, any issues and questions requiring interpretation should be presented to the Medicare Carrier Medical Director, who is required by federal law to provide definitive responses in writing to questions posed to the carrier. This is a very sobering development and compels careful and thorough compliance planning work.

Charles I. Artz, Esq., is the principal of Artz & Associates, a Harrisburg, Pennsylvania based health law firm.

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